Better to be a broker than a baron on Wall Street if you're expecting a big bonus this year.
The decision by top Goldman Sachs executives to forgo bonuses in 2008 is forcing other investment bank bosses to consider following suit. But thousands of lower-tier brokers will collect big bonuses as firms try to keep their top talent from bolting for boutique firms or other industries.
Wall Street employees often receive up to 80 percent of their total compensation from year-end bonuses. Now those payments are attracting more scrutiny from lawmakers and consumer groups because taxpayers are footing the bill for the government's $700 billion financial bailout.
“Nobody is going to be stupid enough to pay their CEO an outlandish amount of money in this climate,” said Alan Johnson, managing director of compensation consulting firm Johnson Associates. He estimates Wall Street CEOs will see bonuses reduced by up to 70 percent this year.
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Goldman Sachs Group Inc. announced Sunday that seven executives, including Chief Executive Lloyd Blankfein, would get no cash or stock bonuses for 2008.
Blankfein received total compensation of $54 million last year, according to calculations by The Associated Press, making him the sixth-highest-paid CEO of a Standard & Poor's 500 company in 2007.
It's the first time top Goldman executives have not received bonuses since the 139-year-old investment bank went public in 1999. The executives decided to forgo the payments this time “because they believe it's the right thing to do,” Goldman spokesman Michael DuVally said.
Though it's unusual for Wall Street executives to turn down bonuses, it has happened before. Morgan Stanley CEO John Mack took no bonus last year.
Even if top executives give up bonuses, that won't mean the end of eye-popping Wall Street paydays this year or next. Though some top executives may “humble themselves” and take little or no bonus, Johnson said “thousands of other people will get paid millions.”
Despite the credit crisis, “you're going to find pockets of these companies that are doing very well, and those people are going to get a bonus,” said David Schmidt, a senior consultant on executive pay at James F. Reda & Associates. “If they don't get paid, they're going to be angry, and they're going to leave” for other jobs.